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China is rapidly earning the distinction of being one of the world’s worst real estate markets, and two new data points only strengthen its grip on that unwanted mantle. Reuters recently reported that home prices in China have been descending faster in the last 10 years. Reuters also reports that Chinese new home prices have fallen for eleven consecutive months.
Both data points are based on information from China’s National Bureau of Statistics, which showed a 0.07% price drop in May. Aggregated data over the entire year shows that May prices were down 3.9% since last year. April’s data shows a similar decline of 3.1% compared to a year ago.
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CNN reports that continued troubles in the real estate sector are significantly dragging the Chinese economy. The current state of affairs represents a dramatic turnaround. China’s real estate sector was booming before the COVID crisis when builders and buyers took advantage of easy financing to expand property developments throughout Asia.
Unfortunately, the easy credit terms and low interest rates encouraged many developers to overbuild, leading to several oversaturated markets by 2021. Since then, China’s national government and several high-profile private developers have been caught in numerous public scandals.
According to NPR, one notable scandal involved Guangzhou Evergrande. In 2018, it was China’s largest developer when it began defaulting on its debts in 2021. By 2024, it had gone from China’s largest developer to drowning in debt.
Guangzhou Evergrande had racked up $300 billion in total debts during its building spree, but was unable to raise cash quickly enough to pay its bills. This led to a very public bankruptcy that shook China’s real estate market to the core.
The Chinese Central Government responded by tightening credit standards and raising interest rates. Ironically, this move uncovered another deep-seated problem in China’s real estate industry. Many of its developers had presold units in housing complexes they had yet to finish building. They simply assumed they would have continued access to easy credit and be able to finance the remaining construction.
Once that was no longer possible, many developers were left in the difficult position of having presold units that they could not deliver to buyers. In some instances, homebuyers have been waiting nine years for units they paid for but still need to be completed. The tightened credit standards also meant obtaining mortgage loans became more difficult for Chinese buyers.
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Meanwhile, other markets are so oversaturated that developers take drastic measures to offload inventory. One developer offered to buy the existing homes of residents if they agreed to use the money to buy the developer’s new homes. It’s safe to say this continued drip of bad news and mishaps has severely damaged China’s real estate industry.
Despite the government reversing course and easing lending standards, many buyers remain on the sidelines. They don’t want to pay for units as they aren’t sure developers can deliver, and they don’t want to live in ghost towns where thousands of units remain unsold. When all of this is added together, it’s easy to see why China’s real estate market is generating historically bad numbers. The only remaining question is, how low can it go?
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This article China’s Real Estate Data Trending In Wrong Direction And Hitting Historic Lows originally appeared on Benzinga.com